CHANGING THE RULES OF COMPETITION BY DELIGHTING CUSTOMERS

How to create innovations that customers do not expect, but that they eventually love? How to create products and services which are so distinct from those that dominate the market and so inevitable that make people passionate? As this author writes, the answers are much more counterintuitive then expected: Don’t get close to users, but rather, step back from them and innovate by starting from the context in which users live.

A bold, new way to compete

Two major findings have characterized management literature in the past decades. The first is that radical innovation, while risky, is one of the major sources of long-term competitive advantage. For many authors, however, the phrase “radical innovation” is an ellipsis for a longer construction that spells radical technological innovation. Indeed, investigators of innovation have focused mainly on the disruptive effect of novel technologies on industries.

The second finding is that people do not buy products but meanings. People use things for profound emotional, psychological, and socio-cultural reasons as well as utilitarian ones. Analysts have shown that every product and service in consumer as well as industrial markets has a meaning. Firms should therefore look beyond features, functions, and performance, and understand the real meanings users give to things. The common assumption, however, is that meanings are not a subject for innovation: they are a given. One must understand these meanings but they cannot be innovated.

Meanings have indeed intensively populated the literature on marketing and branding. And user-centered perspectives have recently provided powerful methods for understanding how users (currently) give meaning to (existing) things. But in studies on radical innovation, an examination of meanings has been largely absent. They are not considered a subject of R&D.

Innovation has therefore focused on two strategies: quantum leaps in product performance enabled by breakthrough technologies, and improved product solutions enabled by better analysis of users’ needs. The former is the domain of radical innovation pushed by technology, the latter of incremental innovation pulled by the market

However, companies such as Nintendo, Apple, Artemide, Whole Foods Market and Alessi show that meanings do change—and that they can change radically. These companies therefore purse a particular strategy, design-driven innovation, that is, radical innovation of meaning. Think for example of the Nintendo Wii that transformed the console experience from a passive immersion in a virtual world approachable only by niche experts into an active, physical entertainment for everyone, in the real world, through socialization. Or of Whole Foods Market, which has radically changed the meaning of healthy nutrition from a severe, self-denying choice to a hedonic one, and shopping from a chore to a reinvigorating experience.

These firms have not provided people with an improved interpretation of what they already mean by, and expect from, a console or an organic food store. Rather, they have proposed a different and unsolicited meaning, which was what people were actually waiting for. The design-driven innovations introduced by these firms have not come from the market. Rather, they have created huge markets. They have generated products, services, and systems with long lives, significant and sustainable profit margins and brand value, and they have spurred company growth.

The strategy of Design-driven Innovation

I’ve been investigating these and other leading firms for 10 years. In my book, Design-Driven Innovation – Changing the Rules of Competition by Radically Innovating what Things Mean, I describe how they have built an unbeatable and sustainable competitive advantage through innovations that do not come from the market but rather that create new markets, mainly by competing through products and services that have a radical new meaning, that convey a completely new reason for customers to buy them. The cases, data and stories in the book show how to create this new vision and how to successfully propose it to customers.

Radical innovation of meanings doesn’t come from user-centered approaches. If Nintendo had closely observed teenagers using existing game consoles, it probably would have improved traditional game controllers, enabling users to better immerse themselves in a virtual world, rather than redefine what a game console is. User-centered innovation does not question existing meanings but rather reinforces them, thanks to its powerful methods. Design-driven innovations are instead proposals, which however, are not dreams without a foundation. They end up being what people were waiting for, once they see them. They often love them much more than products that companies have developed by identifying and responding to users’ needs.

Innovation through radical interpretations

My research shows that these radical proposals come from a very precise process and concrete capabilities. Firms that develop design-driven innovations step back from users and take a broader perspective. They explore how the context in which people live is evolving. Most of all, these firms envision how this context of life could change for the better. Their question, therefore, is, “How could people give meaning to things in this evolving life context? Which kind of experience would they love?” When a company takes this broader perspective, it discovers that it is not alone in asking that question. Every company is surrounded by several agents (firms in other industries that target the same users, suppliers of new technologies, researchers, designers, and artists) who share its interests. Consider, for example, a food company that, instead of closely looking with a magnifying lens at how a person cuts cheese, asks, “What meanings could family members search for when they are home and are going to have dinner?” Other actors are investigating this same question: kitchen manufacturers, manufacturers of white goods, TV broadcasters, architects who design home interiors, food journalists, and food retailers. All are looking at the same people in the same life context: dinner with family at home at night. And all are conducting research on how those people could give meaning to things. They are, in other words, interpreters.

The process of Design-driven Innovation

Companies that produce design-driven innovations are better than their competitors at detecting, attracting, and interacting with key interpreters. The process of design-driven innovation therefore entails getting close to interpreters. It leverages their ability to understand and influence how people could give meaning to things. This process, described in detail in my book, consists of three actions.

The first one is listening. It is the action of gaining access to knowledge about possible new product meanings by interacting with interpreters. Firms that listen better are those that develop privileged relationships with a distinguished circle of key interpreters. These are not necessarily the most famous in the industry. Rather, successful firms first identify overlooked interpreters, usually in fields where competitors are not searching. They search “outside of the network.” Key interpreters are forward-looking researchers who are developing, often for their own purposes, unique visions about how meanings could evolve in the life context we want to investigate. Firms that realize design-driven innovations are better than their competitors at detecting, attracting, and interacting with key interpreters.

The second action is interpreting. Its purpose is to allow a company to develop its unique proposal. It is the internal process through which the firm assesses the knowledge it gains by interacting with interpreters, and then recombines and integrates this knowledge with its own proprietary insights, technologies, and assets. This process reflects the profound and precise dynamics of research rather than the speed of brainstorming. It implies sharing knowledge through exploratory experiments rather than extemporaneous creativity. It resembles the process of science and engineering (although it targets meanings rather than technologies) more than that of a creative agency. Its outcome is the development of a breakthrough meaning for a product family.

The third action is addressing. Radical innovations of meanings, being unexpected, sometimes initially confuse people. To prepare the market for groundbreaking proposals, firms leverage the seductive power of interpreters. By discussing and internalizing a firm’s novel vision, these interpreters inevitably change the life context (through the technologies they develop, the products and services they design, the artworks they create) in a way that makes the company’s proposal more meaningful and attractive when people see it.

The key role of executives

The key leaders in this process are not designers, but executives who identify the talented interpreters, lead the interpretation process and take responsibility in identify and promoting a novel vision. You do not need to be creative or to be a guru. Every executive can promote innovations that clients will love, by implementing the proper process and capabilities. The attitude of executives in this process however, is not reflected in typical innovation and marketing handbooks. Think of the following statement by a marketing manager for Apple, who described its market research as consisting of “Steve looking in the mirror every morning and asking himself what he wanted.” [Jeffrey S. Young and William L. Simon, Icon: Steve Jobs—The Greatest Second Act in the History of Business (Hoboken, NJ: Wiley, 2005)]. This claim seems preposterous and illogical— almost blasphemous. It contradicts popular theories of user-centered innovation. We have been bombarded by analysts saying that companies should get a big lens and zoom in on customers to understand their needs.

But that mirror in which Steve Jobs metaphorically looks at himself is not a magic gizmo that delivers soothsayings; it is the mirror of an executive’s personal culture. It reflects his vision about why people do things, about how values, norms, beliefs, and aspirations could evolve, and also about how they should evolve. It is a culture built from years of immersion in social explorations, experiments, and relationships in both private and corporate settings. Every executive has her own personal culture, her own vision of the evolution of the context of life in which her products and services will be used. Every person relentlessly builds her culture, often implicitly, by simply being immersed in society and through the individual explorations of life. Executives do not need to be experts in cultural anthropology or pretend to be gurus or evangelists. Culture is one of the most precious gifts of humanity. Everyone has it.

Often, however, this gift remains unharnessed. Management theories do not help us unleash it. Rather, they often suggest that people hide it. The innovation tools, analytical screening models, and codified processes that experts recommend are typically culturally neutral or even culture averse. When innovation is purely technical (such as when it optimizes an existing feature) these methods may work well. However, when a firm wants to radically innovate the meaning of products and propose new reasons why people could buy things, these culturally neutral methods fail miserably. In my research, I’ve been investigating companies that transformed breakthrough ideas into acclaimed business successes right after other firms dropped them for being uninteresting or outlandish. My question is: Why do some executives recognize the stunning business value of breakthrough proposals better than others? How can you prepare yourself to create and recognize these opportunities?

The answer, in terms of management practice, is well detailed in my book. However, a more subtle notion underlies these accounts. Many of the executives I investigated reveal an interesting combination of two personal characteristics: a belief that culture is an essential part of everyday life (and therefore of business) and a significant unawareness of established management theories. That is definitely true of, for example, Steve Jobs. But it is also true of the Italian entrepreneurs of successful design-intensive manufacturing firms. In Italy, primary and secondary education has been sharply focused on the humanities, making culture an essential part of the personality of entrepreneurs. Management sciences, in contrast, have developed much more slowly in Italy than in other countries (almost none of these entrepreneurs has an MBA). These managers somehow did not come in contact with what prevented other executives from leveraging their cultural assets. This does not mean that these leaders did not fulfill their role as executives. Simply, their management practice was completely different from existing theories. Every executive can direct her personal culture—her treasure, and the treasure of colleagues both inside and outside her firm—toward the creation of economic value. If properly nurtured and shared, this asset can become an integral part of you as a business leader. Executives should not be unafraid to look into the mirror to leverage their personal culture, and to see things that others do not. But they should do so not because they are creative or because they are gurus. Rather, they should do so because they are businesspeople.

About the Author

Roberto Verganti is a Professor of Management of Innovation at Politecnico di Milano, where he directs MaDe In Lab, the laboratory for executive education on the MAnagement of DEsign….Read Roberto Verganti's full bio